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MNI NORGES WATCH: On Hold, Tilts Against 2024 Cut

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Norges Bank left its policy rate at 4.5% at its June meeting as expected, and Governor Ida Wolden Bache said it may stay there to the end of the year, tilting away from previous guidance which had pointed to a September cut.

Rather than following the European Central Bank and others on the rate cutting path the Norwegian central bank is emphasising the need to get on top of inflation. Its projections in the Monetary Policy Report showed the target CPI-ATE measure at 3.4% in 2025, 2.8% in 2026 and 2.4% in 2027, with each of these figures nudged a little higher from the previous quarterly forecast round.

Wolden Bache was keen to stress that a hike was not ruled out. Norges Bank hiked its policy rate to 4.5% in December and the current projections would suggest it may stay there for 12 months though Wolden Bache, in an interview with MNI, denied the Bank was following a “Table Mountain” approach of keeping rates stable but high for an extended period. (See MNI INTERVIEW: Norges Bank Could Still Hike -Wolden Bache)

Economic growth has surprised Norges Bank to the upside. GDP growth in 2024 is now projected to be 1.1%, 0.7 percentage points higher than the central bank previously assumed and 1.9% in 2025 before falling to 0.4% in 2026.

The resilience of the real economy to rate hikes and stubborn inflation have pushed Norges Bank towards a tougher message on the rate path.

The central bank also raised its estimate of the range for the real neutral rate to between 0 and 1%, 0.5 percentage point above its previous estimate. While Wolden Bache said the impact of the change is neutralised because Norges Bank had used the top end of the previous range in earlier forecasts, and stressed that r-star is just one indicator of many, it does push up the expected settling point for the policy rate in the medium term.

The rate forecast in the Monetary Policy Report showed the policy rate dipping from 4.5% this year to 4.1% next and on down to 3.4% in 2026, a mere 0.1 percentage point above the previous projection.

MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com

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